Regulation Fd and Market Behavior Around Earnings Announcements: Is the Cure Worse than the Disease?

30 Pages Posted: 28 May 2002

See all articles by Warren Bailey

Warren Bailey

Cornell University; Fudan University - International School of Finance (FISF)

Haitao Li

University of Michigan - Stephen M. Ross School of Business; Cheung Kong Graduate School of Business; Cheung Kong Graduate School of Business

Connie X. Mao

Temple University - Fox School of Business and Management

Rui Zhong

Cheung Kong Graduate School of Business and University of Texas at Arlington

Date Written: July 2, 2002

Abstract

We assess the impact of Regulation Fair Disclosure (Reg FD) by examining market and analyst forecast behavior around earnings releases. After the implementation of Reg FD, stocks experience declines in event period return volatility, increases in event period trading volume due to differential informed judgment or difference in opinions, and increases in pre announcement forecast dispersion. Additional tests suggest increases in disagreement and differences of opinion among analysts after implementation of Reg FD. Thus, Reg FD is significant, though not necessarily beneficial. In particular, the regulation appears to impair the ability of the market to reach consensus.

Keywords: Regulation FD, Fair Disclosure, earnings announcements, market reaction, event study

JEL Classification: G18, G14, K22

Suggested Citation

Bailey, Warren B. and Li, Haitao and Mao, Connie X. and Zhong, Rui, Regulation Fd and Market Behavior Around Earnings Announcements: Is the Cure Worse than the Disease? (July 2, 2002). Available at SSRN: https://ssrn.com/abstract=311364 or http://dx.doi.org/10.2139/ssrn.311364

Warren B. Bailey (Contact Author)

Cornell University ( email )

S. C. Johnson Graduate School of Management
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Ithaca, NY 14853-6201
United States
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HOME PAGE: http://courses.cit.cornell.edu/wbb1/

Fudan University - International School of Finance (FISF) ( email )

220 Handan Road
Shanghai, 200433
China

Haitao Li

University of Michigan - Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States
734-615-5475 (Phone)

Cheung Kong Graduate School of Business ( email )

Oriental Plaza, Tower E3
One East Chang An Avenue
Beijing, 100738
China

Cheung Kong Graduate School of Business ( email )

Oriental Plaza, Tower E3
One East Chang An Avenue
Beijing, 100738
China

Connie X. Mao

Temple University - Fox School of Business and Management ( email )

416 Alter Hall
Philadelphia, PA 19122
United States
215-204-4895 (Phone)
215-204-1697 (Fax)

Rui Zhong

Cheung Kong Graduate School of Business and University of Texas at Arlington ( email )

China
(010) 85188858 (Phone)
(010) 85186800 (Fax)

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